Entries from April 2009 ↓

In case you missed it, Chryslerâ€™s gone paws-up. But this is no normal bankruptcy.Â This is 2009. Rules are made up as governments go along. And moneyâ€™s no object.

The automakerâ€™s corporate failure will cleansed by Ottawa and Washington in order that one goal be accomplished: save jobs. Well, some jobs.

Shareholders were long ago reamed out. Politicians are taking the car company through bankruptcy court to ensure bondholders and other legitimate debtors and creditors are completely and remorselessly screwed. Then, without a vote going to the peopleâ€™s representatives in either capital, $15 billion in public funds will be pumped into a new company which an Italian carmaker will effectively be given.

In return for pumping cash into a moribund outfit that crashed because it built too many cars people didnâ€™t want, overpaid its workers and was run into the ground by millionaire managers, taxpayers will get equity. In Canada, according to PM Stephen Harper and Ontario preem Dalton McGuinty, the people will own 2%. That will cost $3.8 billion.

So, will anything be different going forward? What do Canadians get for spending $375,000 on every single job at Chrysler Canada? If there is no guarantee Chrysler will build new products, be run better, inspire buyers once again and suffer no more ruinous losses, would it not have been safer just to inject 375K into every autoworkerâ€™s RRSP?

Maybe. But that would be outrageous, and unfair to every other working Canadian who does not earn $75 an hour as these company employees did (the union says people on the line get $45, the rest is ‘all-in’ cost). Hey wait, thatâ€™s just about everybody! And I even hear most people who are laid off donâ€™t collect 90% of their normal wages, as idled autoworkers do. No wonder these jobs are special.

Chrysler to slide into bankruptcy today. The National Post no longer a daily. Almost 80,000 new jobless in a single month. Political biker babe Julie Couillardâ€™s famous frock sells at auction for a fifth of what she wanted.

The world has certainly turned into an interesting place. And I didnâ€™t even mention the WHO moving to pandemic Defcom 5 or the US economy plunging a scary 6% in the first quarter.

Amid this, believe it or not, Washington says there are signs the economic slump is ending, which the stock market apparently has bought.Â The Fed just confirmed interest rates will stay at zero. In fact, a leaked central bank report says negative interest rates may be necessary in the months to come. Given the current levels of joblessness, deflation and despair, the best rate, it asserts, would be minus half a point.

Imagine. Banks paying you interest to borrow money. Is this a wonderful time, or what?

The flip side however, is when governments go insane, as they are now, itâ€™s for a reason. American policymakers are spending $10 trillion they donâ€™t have, running up the biggest debts in the history of man and making money free because they fear a deflationary spiral.

This has been the sweaty thing at night now for many months, and despite the Polyanna statements from politicians, the threatâ€™s grown. Officially, 8.5% of Americans are out of work, but the real rateâ€™s believed to be twice that. In fact, in Indiana, 25% of workers are idle, while in swaths of California, the jobless number is 20%. Those are not far off 1930s levels.

Prices and wages continue to decline right along with the cost of money.

But in all this comes the mother of decoupling.

The lowest interest rates since ever are clearly seducing the weak. Real estate sales have been shockingly robust. Buyers are paying full price. Mortgage brokers say they havenâ€™t been this busy in two years. First-time buyers are maxing out.

Ironically, the one thing that caused our current financial Armageddon â€“ credit â€“ is making a big comeback, thanks to government policy. Suddenly debt is cool again. Not an hour goes by that someone doesnâ€™t email me gloating about their new loan rate. People are falling over each other to lock into 5-year mortgages at 3%, not stopping to think theyâ€™ll be renewing at two or even three times that level. Home values are actually rising because buyers can afford to pay more thanks to cheap money, thanks to government. Itâ€™s false inflation in the jaws of deflation.

And it will not end well.

We cannot borrow our way to health. Even when bereft politicians plead. Or date babes.

Excuse me. Going to plant carrots.

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On the Road: If you’re hanging out in the Okanagan region on Saturday, join me at the HoweStreet.com Money Expo. The day-long unbuttoned celebration of greed and mammon happens at Kelowna’s Coast Capri Hotel. Registration is free at the door, and make sure you get there by 8:15 am – unless you’ve had enough of me.

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The views expressed are those of the author, Garth Turner, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.